LONDON – Now that the leadership issues in the United States and China have been settled, we can finally frame the economic outlook for 2013 with the knowledge of who will be pulling the policy levers in the world’s two biggest economies. So, what will they do – and, perhaps more important, what will economic forces do to them?
For starters, the US will face recurring challenges with the “fiscal cliff” until financial markets pressure policymakers into more radical deficit reduction. But, despite this and associated growth disappointments, 2013 will be a stronger year for the global economy than many people expect.
In 2011, China contributed $1.3 trillion in additional GDP to the world, the equivalent of creating another Greece every 12.5 weeks, or close to another Spain every year. Together, the four BRIC countries (Brazil, Russia, India, and China) contributed around $2.2 trillion in 2012, equivalent to another Italy every year. (Despite its problems, Italy is still the world’s eighth-largest economy, and will be for at least the next couple of years, until Russia and India possibly overtake it).
The eight growth market economies – the BRICs plus South Korea, Indonesia, Mexico, and Turkey – created close to $3 trillion in 2011, more than the United Kingdom in one year. These economies’ combined size is now approximately that of the US economy, with total annual output reaching $15-16 trillion, or roughly 25% of global GDP. Unless their growth rates slow sharply, their contribution to world output will rise dramatically, and global growth will be stronger than worried Western analysts might appreciate. If the “Growth Eight” economies expanded by 10% on average in US dollar terms, they would add $1.5 trillion to global GDP next year.